Fearless FAANGS and small cap extremes

No fear FAANG

NYFANG continues moving higher, reaching the most overbought levels since the June mania...but overbought can stay overbought for longer than most think possible.

Source: Refinitiv


Small caps

S&P Small Cap Index is up 9% relative to the S&P 500 since Nov. 10th; however, the long- term relative performance and valuation for small caps look very undemanding in a historical context (the S&P Small Cap forward P/E multiple trades at a 30% discount to large caps; 13th percentile back to 1997). Mike Wilson finds that small caps actually tend to underperform both before and after Fed rate cuts, which speaks to the notion that the Fed typically cuts rates as nominal growth is slowing and small caps tend to be quite economically sensitive. (Morgan Stanley)

Thank you rates

Small caps are very sensitive to rising rates. The latest move lower in rates is a tailwind for small caps, ceteris paribus.

Source: MS


They sure didn't buy the dip

CTA equity longs are getting stretched according to BofA, except in small caps: "The exception, however, is the Russell 2000, in which our model only just turned long this week. The Russell 2000 long looks to grow rapidly next week in any price path which could perhaps add continued support to recent small cap outperformance." 

Chasing the IWM here is a late trade according to us...

Source: Refinitiv


IWM upside mania

IWM upside call mania in a pic. Upside massively well bid, both in absolute as well as relative terms. Stuff you never see at lows...(green cone represents the 10th - 90th percentile range).

Source: Spotgamma


Long only buys

GS with a "simple" assumption: a retracement of another 20% in LO flows between now and the March FOMC would imply another $150bn of US LO demand or near $2.5bn of demand/day.

Source: GS


Mag 7

"Mega cap tech stocks collectively were net sold for the first time in 3 weeks (4 of the last 6), driven entirely by short sales. Mag 7 stocks collectively now make up 17.1% of total US single stock net exposure on the Prime book (vs. 18.2% at the start of December and record level of ~20% seen in July, now in the 89th percentile on a 5-year lookback)"

Source: Goldman


VIX "not buying it"

VIX has held pretty much the same levels since late November, despite the fact the SPX has squeezed higher since early December. We saw a similar type of short term "divergence" in July that lasted for weeks before the market eventually rolled over.

Source: Refinitiv


Ratio associated with reversals

The AAII bull vs bear ratio overlaid vs the SPX. Welcome to extreme land.

Source: Refinitiv


Pushing it

CNN's greed/fear index (now in extreme greed territory) vs the SPX.

Source: Macromicro


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